DUST

I think I'll take my chances with the prnoissefoals.Actually, many of the prnoissefoals are skeptical of all of the hype. They know that if you can't make a profit because the energy returns on the energy invested is negative there isn't much to get excited about. It seems to me that you are only paying attention to the hype that the industry is pushing without looking at the actual numbers. So let us do that.The past five year 10-K filings with the SEC show that the marginal cost of production is around $7.50. That means that a shale producer can't make money at anywhere near the current prices. Technically recoverable resources are not the same as reserves. To have reserves you have to be able to extract the gas at a cost that is less than the market price.Shale formations are not homogeneous. As Aubrey McClendon told Bloomberg, 'There was a time you all were told that any of the 17 counties in the Barnett Shale play would be just as good as any other county. We found out there are about two or two and a half counties where you really want to be.' There is your 'expert' admitting that much of what he has told investors over the past decade was not accurate.Reports of profits at $5.50 gas require that one does not count expenses like interest, overheads, plug and abandonment costs, dry well write-down costs, etc. The SEC revisions have allowed shale gas operators to overstate their proved undeveloped reserves but the pursuit of low value reserves have caused the total value of proved undeveloped reserves to go down. Per well estimates are too high. Chesapeake was estimating an EUR 6.5 bcf per Haynesville Shale area well. Its production data showed that a realistic number was 2.4 to 2.5 bcf. Given the costs of production and development that meant that Chesapeake was destroying shareholder capital for each well it drilled. The Barnett Shale data shows the same problem. And to justify the Marcellus Shale operations one needs to include the natural gas liquids, which have to be separated from the gas. The problem is a lack of capacity to do this in the near future. Wells have to be postponed or shut in and once again shareholder equity is destroyed. Sorry but if you look at the numbers there is no case for the shale gas and oil boom. Citing hype and opinions of those who get paid a lot of money to participate in the hype does not change the reality.

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